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The law of diminishing love

Before stating what I want to say I think I should describe from where I got the idea. So please read the 2 paragraphs below.When I was doing my micro economics course I read about a topic call the law of diminishing supply / demand / marginal utility (sorry, forgot the real name of the term). Well term stares that the more one person consumes something the less demand that person will have for a product. This will lead to empty...

Wednesday, November 5, 2008

How money was created

On a social network i have seen someone asking "How money was created?" Do you know from where it was invented? Well many of us don't know when & how it was invented. If you search on the internet then you will find many ways. May be you can also find mine which I am going to tell you. So lets start another knol.

On ancient times people used to trade goods with barter system. Barter system is the method of exchanging goods for goods. Suppose you need oatmeal raisin cookie recipe; that is not for free. Now you have to pay a price for that. But on barter system there was no money. So for that you need to trade something of equal value. Now suppose you have a piece of gold & and a knife. When you go to purchase the recipe you found out that the owner of the recipe does not want gold or knife. The owner wants a horse for the recipe. Now you have to find someone who has horse and wants to trade the horse for either gold or knife. Now you bought a horse & returned to the owner & exchanged the horse for oatmeal raisin cookie recipe. See how easy it was on the barter system.

Here is what you did:

> At first you went to a person who has oatmeal raisin cookie,
> Then the person who has the recipe needs a horse for the recipe which you don't have,
> Then you went to someone who has horse and wants to trade horse for gold,
> You bring the horse to the owner of the recipe and exchanged for it.

Now you can see how many things you have to do in barter system. Why I am telling this? Because if you had money then you could easily exchanged the recipe for money. You can see how hard it was for the people to trade on barter system.

When people were doing trade in barter system there was difference in prices for different types of goods. For example: Lets say you can buy a house for 20 ounce of gold. Also there were goods which did not last long like orange or grape. For that reason they had cheap value. And gold lasts long so gold has more value. So naturally people wanted gold for trading more than other things. When they realized that it is not secure to keep gold on houses they needed to put it on some safe place. Then the goldsmith provided the service. They had built security system to keep valuables safe. People started to deposit their gold to the goldsmith. For that the goldsmith gave people a receipt. Many people started to deposit their gold to the goldsmith & got a receipt. Now people have started to trade goods in exchange of the receipt they got from the goldsmith. It was used as a form of money.

Now have you got your answer that " How money was created? ".

The answer is money was created from the human's own needs. No one came up with the idea of money. All people needed a common thing for exchanging goods. And money was the alternative people accepted as a medium for exchanging.

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